Natural gas futures rise on outlook for frigid January weather

Natural gas futures gained in New York for the second time in three days on speculation that a cold start to January will drive up demand for the heating fuel.

Gas rose as much as 2.2 percent as forecasters including Commodity Weather Group LLC predicted below-normal temperatures for most of the lower 48 states over the next six to 10 days. An Energy Department report today may show supplies declined by 72 billion cubic feet last week, based on the median of 20 analyst estimates compiled by Bloomberg. The five-year average drop for the period is 140 billion, department data show.

“It is getting a little chilly,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “There is probably a little bit of short-covering ahead of today’s inventory report. It’s difficult to sell into the report going into the coldest part of the year, January and February.”

Natural gas for February delivery advanced 6.5 cents, or 1.9 percent, to $3.477 per million British thermal units at 10:01 a.m. on the New York Mercantile Exchange. Gas is up 16 percent this year, heading for the first annual gain since 2007. Futures trading volume was 45 percent below the 100-day average.

The Energy Department is scheduled to release its weekly gas storage report at 10:30 a.m., delayed by a day because of Christmas.

The forecast over the next 10 days became colder for the Midwest, East and South, according to Commodity Weather. While above-normal temperatures may replace the cold blast in the eastern half of the U.S. from Jan. 7 through Jan. 11, the “warm-up seems temporary,” the Bethesda, Maryland-based company said.

Cold Weather

The low in Detroit on Jan. 3 may be 11 degrees Fahrenheit (minus 12 Celsius), 10 below normal, and the next day Boston’s low may be 8 below the usual reading at 15 degrees, according to AccuWeather Inc. in State College, Pennsylvania.

About 50 percent of U.S. households use gas for heating, Energy Department data show.

“If we do get some cold weather you are seeing some calls for sizeable withdrawals,” after a supply surplus expanded this month because of mild weather, said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

U.S. inventories in the lower 48 states totaled 3.724 trillion cubic feet in the week ended Dec. 14, 10.2 percent above the five-year average for the week, the department said last week. The surplus expanded from 4.6 percent at the end of November.

While the supply surplus probably expanded again last week given mild weather, “it becomes harder to be short psychologically” heading into the coldest part of the year, Flynn said. “Up until now it was warmer than normal and we kind of priced that in.”

About the Author

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.